M’sian economy to continue moderating to 5.1 pct y-o-y in 2H18

KUCHING: The Malaysian economy has been projected by analysts to continue moderating to 5.1 per cent year on year (y- o-y) in the second half of 2018 (2H18), from the 5.3 per cent estimated for 1H18.

According to RHB Research Inst itute Sdn Bhd ( RHB Research), a change of policy under the new government could also impact growth, but the research house was of the view that it would be felt more in 2019.

“As we near the end of 1H18, it now appears that the first quarter of 2018 (1Q18) may well have been the peak of the global growth cycle and growth could slow in 2H18 amid rising trade tensions.

“Fur thermor e, recent protect ionist act ions and tari f f measures by the US have increased the risk of an escalation of global trade tensions.

“On balance, we project Malaysia’s real exports to slow to 5.1 per cent y- o-y in 2H18, from 5.5 per cent in 1H18,” the research house said.

RHB Research noted that domestic demand, however, is expected to grow at a resilient pace in 2H18, driven mainly by a stronger expansion in consumer spending in tandem with the zerorating of the goods and services tax (GST) effective June 1, 2018.

“Investment and publ ic spending, however, is likely to be hit by uncertainty over the review of government expenditure and infrastructure policy, offsetting somewhat the gain from higher consumer spending.”

With private consumption, RHB Research projected it to accelerate to 6.8 per cent y- o-y in 2H18, from 6.6 per cent in 1H, resulting in 6.7 per cent growth for the full year.

The research house went on to note that the tax holiday is expected to induce consumers to spend.

“This should provide an immediate boost to consumer spending in 3Q18 – before it normalises in 4Q when the sales and services tax’s (SST) impact slowly kicks in.

“Indeed, even before the zero-rating of GST came into effect on June 1, there were retailers conducting nationwide promotions and discounts to boost sales.

“Meanwhile, wage growth and increase in job hirings should continue to support consumer spending this year, after enjoying robust growth in 2017.” As for private investment, it has been anticipated by RHB Research to slow to 4.1 per cent y-o-y in 2H18, from an estimated 4.7 per cent in 1H, as the new administration reviews its expenditure as well as the construction and infrastructure projects in the country.

“The impact is likely to be more apparent in 2019.” For 2018, the research house expected private investment to grow 4.4 per cent, more than halving from the 9.3 per cent pace recorded in 2017.

On the public expenditure side, RHB Research expected public consumption to grow at a slower pace of 2.7 per cent y-o-y in 2H18, from an estimated 3.3 per cent in 1H18, while public investment is set to grow at a meagre 0.2 per cent y-o-y - from 1.6 per cent in 1H.

“The government has already announced measures as to the downsizing, delaying, renegotiating and abolition of overlapping and non- urgent programmes and projects as part of its rationalisation exercise to cut RM10 billion of expenditure for 2018.” On another note, RHB Research highlighted that the moderation in export demand is expected to drag down manufacturing activities and agriculture products such as palm oil.

“The construction sector could see a slowdown in activity, as the government reviews its expenditure, with such impact to be felt more in 2019.

“Overall slower industrial activities will also likely bring about a moderation in services activities.” Looking ahead, RHB Research expected the current account surplus in the balance of payments to narrow slightly to RM39.3 billion or 2.7 per cent of gross domestic product (GDP) in 2018, from RM40.3 billion or three per cent of GDP in 2017.